Half the biggest tech companies in the world ripped yesterday. The other half got dumped.
Dogs and cats.
Microsoft went on a tear and then reversed. Amazon got hit hard. Tesla and Meta made huge moves. Google was down, Apple was down, and Nvidia held the whole freaking thing together with a side order of Broadcom.
And when the dust settled, the S&P closed up a hair, like nothing happened at all.
That right there is the problem.
The number at the top of your screen told you it was a quiet, slightly green day.
Underneath it, the market was at war with itself.
This is what almost nobody trading the index understands anymore. Market breadth is not what it used to be.
The advance-decline line, the thing traders have leaned on for decades to tell them whether a move is real, has become a sloppy Joe. It will fool you into trading the index when the index isn’t really the market at all.
Here is why, and you need to sit with this one.
Right now the ten largest companies make up around 36% of the entire S&P 500. Put a million dollars in the index and roughly $360,000 of it lands in ten names.
The other 490 companies split what’s left. That is the most top-heavy this market has been in over half a century.
Which means each one of these tech giants is, all by itself, about as large as an entire sector.
Microsoft is the size of a sector. Google is bigger. So when Google sells off and Microsoft rallies on the same morning, the index barely twitches.
It looks calm.
But it isn’t calm.
It is two enormous forces shoving against each other, and the flat number on the screen is just the leftover.
Now do you see the trap?
If you trade the S&P off a breadth reading, you are reading a thermometer that’s been snapped in half.
A “healthy” advance-decline line can be hiding the fact that the three or four names actually steering the ship are quietly rolling over.
And a scary-looking one can be noise from the 490 companies that don’t move the index anymore.
So what do you do with this?
You stop trading the headline index like it’s 2005.
When the market is this concentrated, the index is a story about a handful of stocks wearing a costume.
You watch where the real order flow is, which is in tech, and you respect that a single name like Tesla or Meta can rock the entire tape on its own while breadth tells you everything is fine.
The breadth signal isn’t useless, but it is no longer the whole story, and trading it like it is will get you run over.
This is the kind of thing that separates traders who understand the machine from traders who get chewed up by it.
The market changed underneath everyone, and most people are still using the old map.
If you want to make sure you’re positioned for the market that actually exists right now, not the one that existed fifteen years ago, schedule a call with my concierge team.
They’ll walk through which of our products and services actually fit what you’re trying to do in this environment.
Just a straight conversation about what makes sense for you.
To your success,
Don Kaufman
